At Axis Mutual Fund, a growing portfolio of problems

At Axis Mutual Fund, a growing portfolio of problems

Axis Mutual Fund CEO Chandresh Nigam. Investors are waiting for the results of a Sebi investigation into allegations of frontrunning by some former employees. It’s not just the shadow of scandal, investors are also worried about the company’s slump

Accusations of frontrunning by Axis Mutual Fund employees have led to probes by market regulator Sebi and also by the AMC, which has appointed external agencies.

MUMBAI : Manish Balani, a Jaipur-based executive, invested in an Axis Mutual Fund scheme for the first time in 2017. While Balani is happy that his pick—Axis Flexicap Fund—has performed strongly over the years, he is reluctant to put more money into it today. “I’m not sure how much of an impact this frontrunning issue will have, but I’m not investing fresh money in Axis AMC,” he told Mint.

Balani’s attitude mirrors that of much of India’s investor and advisor community, who are all waiting for the results of a Sebi investigation into allegations of frontrunning by some former employees of Axis MF. Slipping performance Frontrunning at funds is akin to insider trading in listed companies. Here, the fund manager, trader or dealer is aware of large buy or sell orders by an institution and uses that information for personal gains. The fund is affected since the price can run up before it can execute a buy order, which, in turn, affects investors by impacting the net asset value.

While a Sebi probe into the alleged frontrunning at Axis MF is ongoing, on 9 May, the AMC issued a note stating that it had appointed external investigators to look into the allegations of wrongdoing. It added that two senior executives—Viresh Joshi, the fund house’s chief trader and fund manager, and Deepak Agarwal, an equity research analyst and a fund manager—had been suspended.

On 18 May, Axis MF fired Joshi. Two days later, Agarwal was also booted out, like Joshi, for ethics and code-of-conduct violations. While the fund house’s note said that its investigation had begun in February, the suspensions and terminations took place only in May, soon after some Chinese whispers brought the matter into the public eye.

Aside from the frontrunning scandal, another huge worry before the fund house today is the shift in investor focus from growth to value stocks, which has led to a deterioration in the fund house’s performance over the past few months. Axis MF has followed the growth style of investing over the last few years, buying into fast-growing companies, even if they are sometimes expensively valued. That approach paid off handsomely for a few years. Now, however, with market sentiment shifting towards cheaper stocks in the hope they will rise, Axis MF’s funds have suffered an erosion in value. The timing of this shift, in the midst of the frontrunning probe, could not be worse.

‘There is no Lamborghini’

What really lies beneath the frontrunning allegations at Axis MF is a bit of a mystery due to the AMC’s limited disclosures. Mint has pieced together this narrative of what transpired at Axis MF based on court filings in the ₹54 crore wrongful termination suit filed by Joshi, and on the basis of conversations with regulatory officials and the fund house.

On 19 January, a broker wrote an email to Joshi accusing him of frontrunning some stocks. If Joshi was supposed to buy these stocks at ₹100 per share he ended up buying them at ₹105, the email alleged. “This email was marked to a dozen other individuals. Interestingly, the email IDs of all the other individuals were incorrect; only Joshi’s was the right email address,” said a person with direct knowledge of the matter.

The email was detected when Axis audited all its fund managers during a routine examination—in February 2022, all the employees at Axis MF were asked to hand over their personal and work email ids, office computer data, office mobile phones, work-from-home laptops, desktop data, personal landline data and phones to the independent external investigators, AZB, and Alvarez and Marsal.

This email, when examined, raised suspicion due to the details of transactions it had flagged, and led the AMC to launch a probe into possible violations of securities law.

Meanwhile, a Chinese whisper surfaced that an AMC was running a frontrunning investigation into its fund manager, who was painting the streets of Mumbai red in a Lamborghini. The market was quick to connect the dots, and speculated that it was Joshi who was driving around in a Lamborghini.

“There is no Lamborghini. Limited numbers of this luxury car are sold in India and […]

source At Axis Mutual Fund, a growing portfolio of problems

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